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IBM soon-to-retire CEO Ginni Rometty
- The announcement that Ginni Rometty was retiring as CEO of IBM was long-awaited, but still came as a surprise given the timing.
- That's because after years of working on a turnaround, including the massive $34 billion purchase of Red Hat, Rometty said she had finally successfully turned the company around.
- Earlier this month, IBM announced earnings that were ahead of estimates, in a positive sign that Rometty's strategy was bearing fruit.
- But IBM didn't announce the CEO swap at the time of that earnings report, which is when companies traditionally share news of this magnitude.
- In the days that followed IBM's good news earnings announcement, pundits and analysts were still calling for her head, and the stock gains were short lived.
- Visit Business Insider's homepage for more stories.
IBM on Thursday announced that CEO Ginni Rometty was going to retire from the CEO role in April, and named 29-year veteran Arvind Krishna as her successor. Rometty will stay on as executive chairman through the end of 2020.
The move was both a surprise to Wall Street, and not much of a surprise at all. While it's been clear to many industry insiders for over a year that IBM was working on a succession plan, the timing was sort of random - a week after IBM announced its 2019 full-year earnings.
IBM surprised the naysayers on January 21 by reporting a better-than-expected quarter, including revenue growth on the back of its $34 billion Red Hat acquisition, marking a turnaround after years of declining revenues. The day after earnings, the stock soared to just under $144.
Better still, in the earnings press release and on the quarterly conference call, IBM promised that this wasn't going to be a one-and-done quarter. CEO Ginny Rometty doubled down on that promise in interview from Davos with CNBC, saying that after all the years of shedding shrinking businesses, IBM was now in a position for "sustained" growth. She reiterated the company's promises that in 2020, growth would come across all metrics: "we said revenue, we said EPS, we said free cash flow and margin expansion."
She also made a point of emphasizing "margin expansion," meaning that IBM was now making more profit from its younger, higher-growth units, too.
And she further promised that IBM was "going to lead on enterprise cloud." That's a tall order, given that the market today, by most measures, is dominated by Amazon Web Services and Microsoft, with Google considered the third-place contender.
Promises aren't enough
And yet, even in the wake of a promise to get back to growth, and some real results showing progress in that direction, a number of pundits and analysts were still skeptical of Rometty's leadership.
On CNBC's FastMoney on earnings day, the roundtable of traders pointed out that even though the stock had jumped, "It was a $150 stock less than a year ago. It was a $180 stock three years ago," one said. Another chimed in, "The stock's gone nowhere for a long period of time. That tells me that current management aren't the people you want to have in there. So if Ginni Rometty is to retire, I think the stock pops on that."
The discussion followed a hint from Morgan Stanley that Rometty had already been at the helm past IBM's usual retirement age and "a CEO transition could be likely." Morgan Stanley had downgraded the stock before earnings. It raised its price target after the killer earnings, but didn't reverse the downgrade.
Then, the stock drifted back down and other headlines flat-out called for her head.
So when, on Thursday IBM announced she was indeed retiring, many analysts greeted the news with a sigh of relief.
"This will viewed as a long overdue, welcome change at the leadership level," Wedbush Securities analyst Moshe Katri told Marketwatch.
Amazon casts a long shadow
Ironically, IBM announced that Rometty was stepping down on the same day that the 800-pound enterprise cloud gorilla, Amazon, announced its earnings.
And to compare and contrast: IBM had $21 billion in cloud revenue for the year, it said. This includes revenue from things like consulting services and on-premises hardware used for what's called "hybrid cloud," the industry term for private data centers that work with hosted cloud services. Each of IBM's major business units include such cloud revenue.
Amazon Web Services had $35 billion in cloud revenue for the year, it said. And this is made up almost exclusively of its hosted cloud services, as Amazon doesn't have a significant on-premises hardware/software businesses.
Or as Katri told Marketwatch, "IBM in the last few years has struggled with competitive positioning and losing relevance in a vastly changing tech landscape."
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